Regulatory Changes and Aviation Market Development

This report explores the regulatory changes in the aviation industry and their impact on market development. It outlines the regulatory environment in the EU, Asia, and the Middle East. It also compares and contrasts the differences within these regions. Additionally, it discusses the emergence of new business models in the airline industry.

Regulatory Changes
and Aviation Market
Development

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY...................................................................................................................................3
(1) Outline regulatory environment in EU.............................................................................3
(2) Outline Regulatory environment in Asia..........................................................................5
(3) Outline Regulatory environment in Middle East..............................................................6
(4) Compare and contrast the differences within these three regions on the following.........7
CONCLUSION................................................................................................................................9
REFERNCES.................................................................................................................................10

INTRODUCTION
The liberalisation gave birth to new airline industry accompanied by effective business model as
well as competitive strategies. The last few decades caused many regulatory changes in the
aviation industry. One of its part is the deregulation which helped the airline industry to sustain
keeping in view the changing environment (Harvey, Turnbull and Wintersberger, 2019). The
effective strategies need to be formulated in this field as the aviation sector contributes towards
economy. The deregulation abolished various restrictions over the airlines so that the industry
works effectively and efficiently. As the restrictions was creating barrier in the sector to fly
freely across different regions. It further introduces free market for new entrants in airline and
even focused towards commerce and trade (Trimarchi, 2017). The report outlines various
aviation regulatory changes accompanied by the emergence of new business models and
competitive strategies.
MAIN BODY
(1) Outline regulatory environment in EU
In aviation industry the low-price competition are threating the sustainability of the
traditional market leaders. The main aim of the low-price firms is to erode profit margins
accompanied by an increase in market share. The Low-Cost carrier is one of the example of
aviation industry (Baldwin, 2017). The airline passenger has witnessed the growing price
competition in this industry. The intensified competition is led by initiatives in respect of
policy deregulation until the concept of cost airlines are not emerged. Europe Low-Cost
airlines have changed the way of travelling and further construed the direct services between
city pairs which earlier used to lack (Oxford Analytica, 2017).
Deregulation of the European aviation market
Many significant changes were evolved in air transport industry of Europe. The end of
single market in air transport industry is the main reason of such changes. One of the
significant change is the emergence of Low-Cost Airline (LCA). The main reason behind its
pace of free and fair competition in European Airline is the deregulation in European Union
Aviation Industry.

One of the Characteristics of European aviation was its barrier entry, price collusion and
capacity sharing. The airline used to charge high fairs as compared to standards adhered by
world (Palcic and Reeves, 2021).
Prior to deregulation the route was very expensive because of high fair charges. The
traditional airlines in Europe used to serve on particular cities which was mainly the capitals
of European countries. As the reason was the concept of one airline of one country is
designated for a given loot. For example for London-Paris route two airlines that is British
Airways and Air France was designated to serve this route.
Later the changes in regulation were made through two ways-
 Renegotiation of Bilateral Air Service Agreement between Countries- The new Air
Service Agreement was negotiated between U.K. & Netherlands which was later
followed European countries. This negotiation led positive attribute towards
liberalisation (Ivanova, 2017). The key aspect of this agreement was right to free
entry of new entrance, free access to airline and elimination of control and double
region.
 Introduction of Liberalisation packages:- The first package was adopted in
December 1987, which led introduction of new fares along with Fifth Freedom
Rights. The second package was approved in June 1990 which facilitated the Right
of airline to carry unlimited passengers and cargo between countries. The third
package led significant change as it removed the remaining regulation constraints on
Intra EU air-transport.
The Three Liberalisation packages resulted in the deregulation air passenger services
in Europe (Halpern and Graham, 2018). As the traditional flag carrier continued to
charge high fare for European routes while individual countries focused to liberalise
their domestic airline industries. On the other hand European was still under dominance
of state own carriers due to monopoly control of government. Europe established Low-
Cost Airline and targeted the Irish by offering traditional services at low fares. The most
important outcome of liberalisation is the remarkable growth of Low-Cost Airline. It was
considered as the pioneer business model which was adopted by many carriers including
American and European carriers.

The Low-Cost Carrier Airlines has adopted strategies which includes the benefit of
low fares (Novelli and et. al., 2020). This benefit of low fares are made by reducing
complexity of cost. Some of its characteristics are:-
 No freight
 Traditional Cost for cabin services
 Advantageous rates on airport operations
 High Capacity in seating and for cargos.
(2) Outline Regulatory environment in Asia
The most significant outcome of the liberalisation package was the remarkable growth of
Low-Cost Carrier accompanied by commercial and operational strategies. The strategies
involves offering of low fares along with effective business services. Low-Cost Model was
pioneered by south-west airline, a US based airline and further was widely stimulated by other
American and European Carriers. Since the year 2000 the model has been effectively adopted by
Asia and Oceania. The operators were Malaysia’s Air Asia, Indian Air Deccan & Others. Thus
the Low- Cost Model was implied by countries world-wide (Heinz and O’Connell, 2018). Even
though the rapid spread of industries is one of the major advantage of deregulated concept.
This led a growth of 20 percent in Asian Aviation industry and it is likely to grow in
future. India being one of the developed country of Asia has signed up for Carbon off-set and
Reduction Scheme in 2016. The south-east Asia was triggered by the wave of Low-Cost
Airlines. The Asia raised their expectation in respect of Low-Cost Airlines. Thus the Strategy
introduced a new phrase of industry development. It has stimulated the efficient transportation
along with the integrated market. Further the growth of Low-Cost Airlines may led the
improvement and efficiency in relation to the connectivity of small and medium cities. The
researchers find it as a blessing with the combination of two trends i.e. deregulation trend and the
emerging Open Skies Policies in the Asian Aviation market (Hall, 2020). The emerging Open
Skies Policies is known as ASEAN (Single Aviation Market) which aims to increase the
connectivity as well as network in the industry. It also enhances the regional trade by adhering
the concept of liberalisation of Air which permits to fly freely throughout region.
The effect of deregulation promoted the system joint venture of Low-Cost Carrier. For Example
Malaysia’s Air Asia, as a member of pan-ASEAN carrier. Further the airport competition is
another element introduced from the liberalisation on which the government of Asia made an

argument that such element can relied upon in order to impose discipline for managerial
behaviour on airport (Stevens, 2018). Primarily two strategies were formed:
 Hubbed Network Strategy- It is followed by Full Service Airlines.
 Point-to-Point Strategy: This P2P strategy is followed by Low Cost Carriers.
International Framework of the Aviation Industry
1. A global industry and countries adhere to Chicago Convention in 1944, it led the
international aviation on the basis of Bilateral Service Agreement between the signatory
countries (Krämer-Hoppe, 2020).
2. The set-up of an International Civil Aviation Organisation (ICAO), an inter government
organisation which guides and regulated the international civil aviation. It also sets
safety, security and other environmental standards for effectiveness of aviation industry.
3. Also the European Civil Aviation Conference (ECAC) is formulated to create
disciplinary in aviation policies as well in the practices among the country members
(Forsyth and Guiomard, 2019).
(3) Outline Regulatory environment in Middle East
Even the Middle East countries contributes their best in the aviation industry. The country
made a bulk of investment on its airlines such as Qatar and United Arab Emirates by inducing
airport extensions and other project developments. The Middle East Carriers in the coming year
will be among the strong global competitors in the aviation industry. The Middle East Carriers
aims to redirect the flow of international traffic especially for Europe and America to Asia. This
is considered as competitive advantage in respect of major competitors of Europe and America.
The Middle East Carriers has invested huge amount on airlines and infrastructure
development of airports in order to attract the market segment as well as to attain sustainability
in the competitive market (Lawton, T.C., 2017). As an intermediary between America and
Europe the Middle East Carriers have shown effective international growth as compared to the
other established carriers. (For example Air France, British Airways). The two main factors
which led Middle East Carriers to gain competitive advantage in the aviation industry are as
follows:-
 Its limited operating cost because of the modern approach which helps to lower the
labour cost and others (Gergely, 2020).
 Its limited taxes such as airport charges, freight charges, ticket tax and others.

The government has invested more on commercial aviation activities in order to achieve long
term vision in respect of commerce and trade. The cost breakdown is another major element
which led competitive advantage and a comparison view between European Carrier and Middle
East Carriers. The weakness which devises unfavourable position is its timing factor and
required connecting flights issues (Button, Martini and Scotti, 2017). Thus, the rapid growth of
Middle East Carriers will soon increase the competition between established airlines in the
industry.
Emergence of Low Cost Carrier in Middle East Aviation Market
The market penetration of low cost carrier in Middle East Carriers is new concept and was
pushed by the fast growth of such low cost carriers in other airlines market. Air Arabia was first
Low Cost Carrier in the Middle East Carriers market which aims to promote travel and tourism
sector. The Air Arabia made travelling easy for middle class people by offering them with low
fares. It was successful in dominating the low cost carriers sector by effective annual growth
along with good profit margins. Even the airline industry awarded the Air Arabia as the “best
low cost carrier in Middle East” (Graham and Dobruszkes, 2019).
Strategy
The Air Arabia adapts the aggressive growth strategy by expanding its network. The airlines
follow the multi hub strategy and also launched its subsidiaries in market with an aim to expand
local joint venture with its key destination in Middle East (Efthymiou and Papatheodorou, 2018).
Thus, the success of low cost carrier in European Union has encouraged the business model in
Middle East (by launching Air Arabia).
Critical Challenges faced by Low Cost Carrier in Middle East Market
1. The major challenge was to face the political and economic factors as some airlines due
to political issue cease to operate (Bernard, 2021).
2. Middle East capital investment in airport threatens the competition advantage of low cost
carrier.
3. It also faced many governmental restrictions in the Middle East Market. The restriction
includes Airport taxes, restricted licenses, any hidden bilateral agreement between
countries, etc. (Medda and et. al., 2017).
(4) Compare and contrast the differences within these three regions on the following
Impact of regulatory changes and each regions approach to regulations

Earlier the aviation industry was regularized by national and international regulations.
Therefore, safety and other standards aims to be mainly regulated by aviation authorities but the
modern era led commercial pressure on aviation industry due to globalisation and liberalisation
in this sector. The deregulation strategy lifted various restrictions from airline industry (Koo and
et. al., 2017). Thus led to an increase in the efficiency and strategy has been a successful change.
European Union: As per the liberalisation regime of the European Union aviation is
governed by Bilateral Air Service Agreement concluded by the signatory countries. Domestic
and international initiatives are induced as an oriental approach towards the air services (Dixit
and Jena, 2018). Its regulatory approach towards international agreed air service is its one of the
principal focus.
Asia: The deregulation and Open Skies Policies caused positive impact on tourism sector of
Asian countries (Spinney and Jungnickel, 2020). Asian Carriers benefited from the regulatory
changes. Asia approached future reforms such as air transport which includes the expanding of
Open Skies Policies. In simple words expansion of air freedom rights and relaxation in terms of
ownership. The Airline Deregulation Act led to increase the trend of global airline liberalisation.
Middle East: A new regulation encouraged an open aviation safety culture. It encouraged an
evidence based approach and considered as an important step and change towards the aviation
industry. Further it led the structural changes in the aviation industry (Capik and Dej, 2019).
Emergence of airline business models as a result of regulatory changes
European Union: European Low-Cost Model is examined as effective business model. The
Low-Cost Carrier introduced new business model and changed the traveling ways in many
countries of Europe (Papatheodorou, 2021). Thus the European Low-Cost Carrier help to gain
cost advantage as well as sustainability in the airline industry.
Asia: Low fare business model in Asia seems effective and efficient in the airline industry.
New Hybrid business model led to formulate their own subsidiaries with an aim to achieve long
term service and growth for example Air Asia (Starace, 2020). Further the business model was
adopted by Asia since 2000 and led to achieve sustainability in the market.
Middle East: The country pace huge attention towards investment on expansion of airport
infrastructure and other related development projects. Also it induces airline development such
as pattern of lights. This business model may lead to increase competition between established

airlines competitors. Further underlying business model in order to expand Gulf Carriers
Network.
Competitive strategies
European Union: The aviation strategy in European Union is a key driver to the
European Economy. Currently its slot regulation strategy sets out rules in respect of various slots
including take-off and landing. Since deregulation Low-Cost Carrier was a strong competitive
strategy which cost competitive advantage in the market (Yip and et. al., 2020). Further a
legislative proposal in respect safeguarding competition in airline industry considered as an
effective competitive strategy.
Asia: In this airline use differentiation generic strategy. The strategy aims to lower the cost
of fare by reducing operational cost and thus offers benefits to its customers. The segment
strategy delivers high competition advantage in the industry (DAYI and SEZGİN ALP, 2020).
Further the strategy successful to attract market segment.
Middle East: Middle East carrier itself in the coming year will become strong global competitor
in the world. The country aims to adopt strategy which shall be effective and efficient for Middle
East aviation system. The main strategy is to invest huge in Gulf Airports. Also its strategy to
become intermediary between America of Europe and Asia seems to be effective as the strategy
involves diverting traffic from other carriers (Díez‐Pisonero, 2019).
CONCLUSION
From the above report it is concluded that the aviation industry plays a vital role in the
economy. The liberalisation of aviation industry led the introduction of new airline and caused
many regulatory changes in the environment. The report above discussed how these changes
impacted on countries of Europe. Further the emergence of business model and approaches in
context of these changes. The competitive strategies are also defined in order to gain competitive
advantage in the aviation industry. The report outline the regulatory changes in Europe, Asia and
Middle East. Also the report compared such changes within these regions in accordance with
their business models and competitive strategies. Thus, the aviation sector faces many challenges
and is required to opt strategies keeping in view the environment change in order to achieve
growth and success for long term.

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